Key Takeaways
- Plains All American (PAA/PAGP) is transforming into a pure-play crude oil midstream company through the divestiture of its Canadian NGL business.
- The shift higher in the oil futures curve helps underpin Permian oil production volumes and may even lead producers to increased activity in time, which would benefit Plains.
- Plains remains committed to a $0.15 per unit annual distribution increase until its distribution coverage reaches 150%.
Plugged In is a short-form video series from the Energy Infrastructure Council and VettaFi featuring candid one-on-one interviews with energy infrastructure executives. Each week will feature a new conversation leading up to the 23rd Annual Energy Infrastructure CEO & Investor Conference on May 18-20 in Aventura, Florida.
The note below includes key takeaways from a recent conversation with Chris Chandler, chief operating officer of Plains All American. The discussion covered PAA’s transformation into a pure-play oil midstream company, Permian production trends, and the company’s plans for distribution growth.
Permian Expectations Shift With Higher Crude Futures Curve
PAA’s extensive Permian footprint provides a front-row seat to oil fundamentals in the most important production basin in the U.S. Coming into this year, Permian oil production was expected to be flat. The first quarter saw some production interruptions from severe weather. Additionally, Permian producers are currently limited by natural gas takeaway constraints, albeit pipeline relief is coming. Kinder Morgan’s (KMI) Gulf Coast Express expansion, the Blackcomb Pipeline, and Energy Transfer’s Hugh Brinson should all come online later this year (read more).
The outlook, particularly for 2027, has shifted with the war in Iran and a higher oil futures curve. Inventories have been depleting, creating a call on future demand. Recorded on April 9, Chandler hoped then that the market disruption would not last too long, given the risk of demand destruction.
While oil prices have remained volatile, the higher futures curve underpins production plans and may support additional drilling activity, with a benefit more likely in 2027. This reflects the typical six–12-month lag between the decision to drill a well and when it connects into Plains’ system. That said, the stronger oil outlook should benefit PAA and may even allow for a potential expansion of the recently acquired 600,000-barrel-per-day Cactus III crude pipeline out of the Permian (formerly EPIC).
Transitioning to a Pure-Play Oil Midstream Company
PAA is undergoing a major transformation with the impending sale of its Canadian NGL business to Keyera (KEY CN) for $3.75 billion, expected to close in May 2026. The divestiture will position PAA as a pure-play crude midstream company with a footprint extending from Alberta, Canada, to the U.S. Gulf Coast. Much of that infrastructure is integrated with the company’s extensive Permian footprint. Notably, with its assets in Western Canada and the Permian, PAA has a presence in the North American basins best positioned for oil production growth.
Chandler also pointed out the benefits of shedding the NGL business. Historically, about half of the EBITDA from PAA’s NGL segment was exposed to commodity prices, so the company’s cash flows will become more fee-based. Additionally, exiting the NGL business eliminates elevated maintenance capital spending, associated corporate taxes, and exposure to seasonal trends.
Looking ahead, PAA is leaning into its strong history of utilizing strategic M&A alongside organic growth. The company considers M&A a core strength and has a strict vetting process that targets 13%–15% returns. Since 2022, PAA has completed 17 bolt-on acquisitions for ~$4.3 billion. Bolt-on acquisitions can be easily integrated into their system, allowing for lower operating costs and ultimately attractive synergies. Plains also owns stakes in a long list of joint ventures that could become future M&A opportunities as partners potentially look to exit their positions.
Outlook for Distribution Growth
PAA’s capital allocation strategy is underpinned by its commitment to increasing its distribution by $0.15 per unit each year until its distribution coverage comes down to 150%. The company is forecasting coverage for 2026 to be ~155%. Beyond 2026, the company expects the sale of its NGL business (reduced maintenance capex and corporate taxes) and expansion opportunities on its crude system, particularly Cactus III, to underpin a runway of several years of distribution growth at the targeted level.
To view the full, 7-minute interview, click here.
Plains All American (PAA/PAGP) is a key constituent in Alerian MLP and Midstream Indexes, which underlie ETFs and exchange-traded notes. As of April 24, PAA was a top-five holding in the Alerian MLP ETF (AMLP) and PAGP was a top-ten holding in the Alerian Energy Infrastructure ETF (ENFR).
Related Research:
Revisiting Energy Market Impacts From the Iran War
Midstream Prepares for More Permian Natural Gas
Enterprise (EPD) on Macro Landscape, ’27 EBITDA Growth
Energy Transfer (ET) on Natural Gas Opportunities & More
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